Judge Dismisses Trustee's Suit Against Mayer Brown Over Refco

Judge Dismisses Trustee's Suit Against Mayer Brown Over Refco - 4/17/2009 , Class Action News, Class Action, Securities News, shareholder class action, claim, litigation, securities action, common stock'>

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HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

DISMISSAL NEWS:

Judge Dismisses Trustee's Suit Against Mayer Brown Over Refco
Mark Hamblett

New York Law Journal. April 17, 2009
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EXCERPT: A lack of standing has led a federal judge to dismiss a second civil case against Mayer Brown in connection with the Refco scandal. Southern District Judge Gerard E. Lynch ruled Tuesday that the case brought by liquidation trustee Marc S. Kirschner, who is standing in the shoes of Refco, must be dismissed because "a trustee cannot sue to recover for a wrong undertaken by the debtor itself." In addition to Mayer Brown, the judge in Kirschner v. Grant Thornton, 07 Civ. 11604, also granted motions to dismiss sought by Credit Suisse Securities and other investment banks, Ernst & Young U.S. and other accounting firms, and several third-party participants. The dismissal was the latest episode in the disastrous collapse of Refco following revelations that top executives concealed debt and misappropriated customer assets on their way to cashing out their interests in the brokerage and clearing services provider through a leveraged buyout in 2004. Last month, Judge Lynch dismissed shareholder claims against Mayer Brown and former partner Joseph Collins in connection with Refco's 2005 initial public offering. The reason, Judge Lynch said in In re Refco, 05 Civ.8626, was that the "Supreme Court and Congress have declined to provide a private right of action for victims of securities fraud against those who merely -- if otherwise substantially and culpably -- aid a fraud that is executed by others." The issue was different in Kirschner, where Judge Lynch had to determine if "The Wagoner Rule" applied. In Shearson Lehman Hutton v. Wagoner, 944 F2d. 114 (2d Cir. 1991), the U.S. Court of Appeals for the Second Circuit applied New York law, under which a bankruptcy trustee for a debtor lacks standing to recover from third parties for the misconduct of the debtor's controlling managers.

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